The Financial Conduct Authority has become embroiled in an increasingly aggressive campaign against seven investment trusts amid growing concerns over the interests of retail investors.
The FCA has contacted the largest retail investment website about clients of seven investment trusts targeted by U.S. activist hedge fund Saba Capital, according to people familiar with the matter. The regulator wants to ensure shareholders are aware of upcoming votes on trust company board memberships.
FCA officials have asked Hargreaves Lansdown, Interactive Investor and AJ Bell how they can alert customers holding shares in investment trusts on their platforms, people familiar with the matter said.
Saba, run by activist investor Boaz Weinstein, has called on shareholders to vote to oust the trust's board, claiming it failed to hold investment managers accountable for poor performance.
The event could lead to one of the biggest changes in Britain's 150-year-old investment trust industry, which manages £266bn of assets.
Saba has put forward its own candidates for the board and ultimately aims to take on investment management of the trusts, which are currently run by Baillie Gifford, Janus Henderson, Herald Investment Management and Manulife.
However, the investment trust industry has raised concerns that retail investors may not vote, paving the way for Saba to take over. Saba owns between 19% and 29% of the shares in each trust, with a total value of £1.5bn. Saba needs more than 50% of the votes cast in each trust to win.
The FCA is closely monitoring developments and is in close contact with investment platforms that handle communications with investors in investment trusts, according to a person familiar with the matter.
However, the voting rules governing the removal and appointment of directors of investment trusts are set out by the Corporations Act rather than by FCA regulations, so the regulator has decided that these are currently an internal matter for the trust, its board and investors, individuals. additional.
The Investment Companies Association, the industry's trade body, has written to the Financial Conduct Authority (FCA) to express concerns about protecting shareholder interests.
"The stakes are too high for regulators to just rely on people to do the right thing," said AIC chief executive Richard Stone. "When investment trusts propose significant changes, platforms should proactively contact customers to encourage voting ”
Stone called on the UK's Financial Conduct Authority (FCA) to review how board independence is determined under its listing rules. He said Saba's activities in controlling the boards of two investment trusts and becoming their asset manager raised potential conflicts of interest.
The seven trusts targeted by Saba are Baillie Gifford US Growth; Edinburgh Global Investors; Cornerstone Positive Change; European Small Cap; Henderson Opportunities; Pioneer Investments; and CQS Natural Resources Growth & Income.
Hargreaves Lansdown and AJ Bell said they had written to the trust's shareholders to encourage them to vote. Interactive Investor said it has also taken steps to enable customers to vote. FCA declined to comment.